Profits at Europe's largest bank HSBC fell 28%, in what chairman Stephen Green called the "most difficult financial markets for several decades" and added that things could "get worse before they get better".

But compared with what he said were "significant declines in profitability throughout much of our industry", HSBC's $3.9 billion (£1.9 billion) fall in profits to £5.2 billion was far less than many rivals suffered and slightly better than City analysts had forecast.

Once again the bank, which likes to call itself "the world's local bank", saw strong growth in emerging markets counter much of the pain in its North American operations.

Nevertheless, it was the US that accounted for the bulk of another $10.1 billion of write downs and charges on bad loans, up from a figure of $6.3 billion a year ago.

That gave long-running critic and shareholder Eric Knight, of US fund manager Knight Vinke, another opportunity to weigh in.

He has been heavily critical of the 2003, $14.5 billion takeover of Household in the US for over a year and today said: "There can be no prospect of a fundamental recovery in this business, regardless of what the US property market does, unless HSBC addresses the main problem which is Household's unsustainable capital structure. We continue to believe that HSBC should sell, spin-off, restructure or otherwise ring-fence this business."

But HSBC finance director Douglas Flint rejected Knight's call, saying that the best way for HSBC to reflect the value of its US business in its share price would be by working through the latest problems.

Flint said: "The underlying consumer finance and credit cards businesses are fundamentally very good." But at the same time he announced that HSBC will pull out of vehicle financing in the US, in effect putting its $13 billion book into run-off. He admitted the business was neither big enough nor had the pricing power to compete with the major players.

On the mortgage side, which through its exposure to subprime loans forced HSBC to issue its first-ever profits warning last year, the book is dwindling very rapidly. It suffered a reduction of another $5 billion, to $31 billion, in the last six months. But Flint stuck with the bank's view that it will take another two to three years for the business to be fully sorted out.

In the UK, Flint said the situation for both retail and corporate customers had remained solid in the first half. He said bad loans were broadly unchanged, savings inflows up and the bank's share of the mortgage market up from 3% to 6%, with a peak level of 12% as it took advantage of weaker competitors' woes. Green echoed this for the bank globally, saying that with a tier capital ratio of 8.8% (an indicator of a strong balance sheet) the bank could speed up its expansion plans. He said: "In a stressed environment, HSBC has the advantage of a powerful brand; a strong capital and funding position; and the ability to service our international customers around the world. We continue to have the capacity to deploy capital at a time when others may be constrained."

But he refused to confirm reports that the bank is trying to reduce the price it will pay for Korea Exchange bank, which it agreed to buy for $6 billion last September

HSBC shares fell 14p to 823p as Green said: "Ultimately the real economy will recover from this crisis, although it may get worse before it gets better."

The interim dividend rises 6%. Despite today's fall, HSBC's first-half profit is set to be more than all the other UK High Street banks' put together.